ScholarlyCommons

Title

Optimal Social Security Claiming Behavior under Lump Sum Incentives: Theory and Evidence

Author(s)

Raimond Maurer, Goethe University FrankfurtFollow
Olivia S. Mitchell, The Wharton School, University of PennsylvaniaFollow
Ralph Rogalla, St. John's UniversityFollow
Tatjana Schimetschek, Goethe University FrankfurtFollow

Document Type

Working Paper

Date of this Version

1-13-2023

Abstract

People who delay claiming Social Security receive higher lifelong benefits upon retirement. We survey individuals on their willingness to delay claiming later, if they could receive a lump sum in lieu of a higher annuity payment. Using a moment-matching approach, we calibrate a lifecycle model tracking observed claiming patterns under current rules and predict optimal claiming outcomes under the lump sum approach. Our model correctly predicts that early claimers under current rules would delay claiming most when offered actuarially fair lump sums, and for lump sums worth 87% as much, claiming ages would still be higher than at present.

Comments

Published in Journal of Risk and Insurance Vol 88, Issue 1, March 2021, pages 5-27

https://doi.org/10.1111/jori.12302

Keywords

Annuity, delayed retirement, lifetime income, pension, early retirement, Social Security

JEL Code

G11, G22, H55, J26, J32

Working Paper Number

WP2017-02

Copyright/Permission Statement

Opinions and conclusions expressed herein are solely those of the authors and do not represent the opinions or policy of any agency of the Federal Government, or any other institution with which the authors are affiliated. ©2017 Maurer, Mitchell, Rogalla, and Schimetschek. All rights reserved.

Acknowledgements

Research support was provided by the Deutsche Forschungsgemeinschaft (DFG), the German Investment and Asset Management Association (BVI), the Pension Research Council/Boettner Center at The Wharton School of the University of Pennsylvania, the Metzler Exchange Professor program, and the Berkley Fellowship Program at the School of Risk Management of St. John’s University’s Tobin College of Business. We also acknowledge support from the Research Center SAFE, funded by the State of Hessen initiative for research excellence, LOEWE. We thank the Center for Scientific Computing of the Goethe University Frankfurt for granting us computing time at the supercomputer LOEWE-CSC. We are grateful for expert programming assistant from Yong Yu, as well as the RAND ALP team including Alerk Amin, Tim Colvin, and Diana Malouf.